Managing your debts is crucial to achieving financial health. While some debts can be good, keeping them all under control is vital. Aim for financial freedom to enjoy more of the things that bring you joy. This means managing or eliminating debt so that you can focus on other rewarding opportunities.
If you’re looking to find ways to help you take control of your money matters and be financially independent, this is the article for you. Learn about simple yet proven tips that you can adopt today.
Know Your Debt-to-Income Ratio
Financial health starts with knowing your debt-to-income ratio. To calculate, you must divide your total monthly debt payments by your gross monthly income. In general, you need to aim for a debt ratio of 35% or lower to ensure a healthy financial situation. Knowing this ratio provides insight into how much of your income goes towards debt repayment and jumpstart your journey to financial independence.
Create a Monthly Budget Plan
Going into a battle against debt requires a plan—a budget plan. You must include your income from various sources and categorize your expenses. Your monthly plan will help you identify areas where you can cut back to use more funds for debt repayment and savings.
The monthly budget will serve as your guide to achieving your financial goals. It’s also a good representation that shows you exactly just how much you can spend on your wants and needs.
Prioritize Debt Repayment
There are two approaches you can consider. There’s the snowball method, where you pay off smaller debts first to help you stay motivated as you take on bigger ones. The other one is called the avalanche method, where you tackle high-interest debts first, allowing you to save money in the long run. The strategy you choose to go with will highly depend on your financial situation, which you can figure out while working on your monthly budget.
Consider Other Sources of Income
If you can, consider exploring other sources of income. Extra income will always be welcome. For example, you can sell your pre-loved items for one-time earnings. Perhaps you may want to enter the virtual workplace and find a freelance or part-time job. Of course, you must be mindful of pitfalls like overwork and work-from-home burnout. You want financial freedom, but not at the cost of your overall well-being.
Don’t Live Above Your Means
One excellent rule to follow is to live within your means. If possible, try living below it. By doing so, you can have money saved up for your future goals or even for a rainy day. You should avoid unnecessary expenses and try to stick to your monthly budget as much as possible.
Seemingly tiny expenses or small charges to your credit card can pile up. The amount, when added up, can catch you by surprise, especially if you’re not tracking your purchases. To help you stay in control, set limits to your daily transfers and credit card transactions. You can also download budget management apps to record your expenses and income in real time. Using apps and your budget tracker can notify you if you’re spending too much and saving too little. This way, you can adjust your spending strategy depending on the situation.
Look at the Quality, Not the Brand Name
While a little treat once in a while may be okay, you need to cut back on luxury items and things you won’t use. These days, you can find good quality yet affordable items. These products may not have the big brand names that you know. But they also don’t come with hefty price tags that don’t justify the purchase.
Take Care of Your Health
The saying health is wealth is true now more than ever. With the rising healthcare costs, being healthy can be considered unaffordable and a financial burden. And when you pile on medical expenses to your existing debt, you also add to your financial stress.
To add, your overall well-being directly impacts your financial situation. When you’re not feeling well, you’re less likely to report to work. Your performance may also take a hit. All these can affect how much you earn every month, which is a big factor when it comes to your ability to pay off debts.
Conclusion
Effectively managing your debt is not just about the numbers in your bank account; it has a significant impact on every aspect of your life. When you are not constantly worrying about how to pay off your debts, you free up your time and energy towards the more important things in life. You’ll be able to regain your time and focus on things that can help you enjoy life and achieve personal growth.
Tackling your debts may seem daunting, almost impossible. But with the above tips and determination, you’ll slowly but surely come out on top. Here’s to a debt-free future!
AUTHOR BIO
Bash Sarmiento is a writer and an educator from Manila. He writes laconic pieces in the education, lifestyle and health realms. His academic background and extensive experience in teaching, textbook evaluation, business management and traveling are translated in his works.
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